The stretch IRA is an IRA that allows for an extended tax-deferred period and allows beneficiaries to receive payments over a longer period of time. It simplifies estate organization and allows for the account owner to specify who inherits the assets. It is important to inform beneficiaries in advance to organize their finances accordingly.
The stretch IRA is an individual retirement account (IRA) that was created to maximize your tax-deferred period, even to the point of extending tax-deferred earnings to the next generation. This type of structure allows survivors or beneficiaries of the IRA owner to request longer deferment periods as the IRA assets are distributed according to instructions left by the deceased. The ability to defer taxes for an extended period of time allows beneficiaries to make arrangements to pay any applicable taxes associated with money received from the IRA in a given tax period.
As far as organizing an estate is concerned, setting up a stretch IRA is a simple process that helps minimize the red tape that is often involved in sorting out an individual’s affairs after a death has occurred. For the most part, setting up your IRA stretch is the same as any type of individual retirement account. What is different is that the account owner specifies who is to inherit the assets contained in the IRA tract. In the event that multiple beneficiaries need to share the money deposited in the IRA draft, the owner determines, in advance, what percentage of the disbursed funds must be forwarded to each beneficiary.
Using the IRA stretch option has several benefits. First, the account owner can be confident that the money raised in the account will be distributed to the person or persons named as the beneficiary. A second benefit is that IRA money can be spread over a longer period of time. This means that a parent can structure the IRA so that children can receive annual payments over a period of many years, providing them with some degree of financial security.
Because the Stretched IRA includes the designation of the person or persons who are to receive disbursements upon the account holder’s death, it is important to inform each beneficiary in advance that the individual retirement account is structured in this way. This allows disbursement recipients to organize their finances to accommodate the taxes that will be due after the deferral period ends.
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